Suppose that the federal income tax on individuals is set up as follows:Income aboveIncome belowTaxes0$80000.10 × income$8000$35,000$800 + [0.15 × (income - $8000)]$35,000 & up$4850 + [0.25 × (income - $35,000)]Calculate the average tax rate and marginal tax rate for workers with the following levels of income:(a)$6500(b)$27,000(c)$72,000(d)$250,000
What will be an ideal response?
| (a) | MTR = .10. |
| (b) | T = 800 + [(27,000 - 8000) × .15] = 3650. ATR = 3650/27,000 = .135. MTR = .15. |
| (c) | T = 4850 + [(72,000 - 35,000) × .25] = 14,100. ATR = 14,100/72,000 = .196. MTR = .25. |
| (d) | T = 4850 + [(250,000 - 35,000) × .25] = 58,600. ATR = 58,600/250,000 = .2344. MTR = .25. |
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